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New research on fairtrade

An interesting research article on fairtrade from the Institute of Economic Affiairs.

Fairtrade Without the Froth is available in summary or in full on the IEA here

Summary

Fair Trade is part of the marketeconomy and is not, in any way, in opposition to freetrade. Fair Trade sales have grown enormously in the last few years.

Fair Trade bringscertain benefits to producers, such as guaranteed prices, a social premium and theenforcement of particular labour conditions.

These benefits may not be as great as many of Fair Trade’s proponents imply. For example, if the market price falls below the guaranteed price level, though the guaranteed price will be paid for any Fair Trade purchases, the quantity of produce that will be bought from the producer is not guaranteed.

The benefits of Fair Trade also come at a cost. There is a levy on the wholesaler as well as a certification charge for producers. The certification charge starts at £1,570 in the first year – a huge sum of money for producers in the poorest countries.

Fair Trade does not focus on the poorest countries. Fair Trade penetration is greater in middle-income than in poor countries.

Criticisms of Fair Trade are also exaggerated. At its current level of penetration it is likely to do little harm in terms of distorting markets.

The benefits claimed by Fair Trade can also be obtained from the normal business relationships that exist between primary product producers and buyers. Attempts by proponents of Fair Trade to denigrate freetrade and normal market practices are not helpful and distort realities.

Primary product producers will often gain much more by selling speciality brands of their product than they will from adopting the Fair Trade label.

Many other social labelling initiatives exist with objectives that are different from and often more transparent than those of Fair Trade. Attempts by Fair Trade to require schools, parishes and so on to stock Fair Trade goods can damage other social labelling initiatives or require very poor producers to suffer the bureaucracy and costs of obtaining multiple labels.

Fair Trade is not a long-term development strategy, and the model is not appropriatefor all producers. It is also unable to address structural problems within trading systems. Fair Trade’s proponents need to show some humility and accept that it is a niche market designed to benefit some producers; nevertheless, it does achieve that limited objective.